Originally created 09/21/03

Winter demand drives up cost of heating fuel



It might be time to invest in more sweaters and thicker blankets because natural gas prices are going up and may be the highest ever.

Colder winters, diminishing supply and increased usage are leading to large increases in natural gas prices that will affect the approximately 73,500 residencies and businesses in the Augusta area that depend on the fuel for heat.

"Supplies of natural gas have been growing, but they're not growing as fast as popular demand, and as demand begins to outpace supply, price goes up," said Daphne Magnuson, a spokeswoman for the American Gas Association.

The federal Energy Information Administration reported the average natural gas price last winter was 76 cents per therm. A therm is equal to 100,000 British thermal units and is the standard unit of measurement for residential natural gas. The EIA projected gas prices this winter at 80.6 cents per therm, a 6 percent increase.

However, the state Public Service Commission reported the average price per therm so far this month in Georgia is almost 81.6 cents - compared to under 64.6 cents per therm last September. With service costs, delivery charges and taxes added in, the average household using 22 therms per month would pay about $42.

But no one knows how high gas prices will go this winter, particularly the coldest months of January and February.

"Since the 1980s, natural gas has been reasonably priced, a good value. And it continues to be a good value. However, I think the days of $2 gas, which we enjoyed through most of the '90s, are behind us," Ms. Magnuson said.

Harsh winters in recent years, particularly in 2000 and 2002, increased the demand for natural gas and consequently the price. SCANA Energy, one of the largest gas marketers in Georgia, reported that wholesale prices of natural gas rose 125 percent between the winter of 2001 and 2002.

Jim Wagner, a senior forecaster with the Climate Prediction Center at the National Weather Service, said he doesn't think the 2003 winter will be as harsh as 2002.

"There's nothing forcing the atmosphere in any direction," said Mr. Wagner, who explained that the atmosphere over the Atlantic Ocean determines much of the winter weather on the East Coast.

Still, Mr. Wagner warned that his office is not releasing an official winter weather forecast because of the uncertainty of the weather this winter.

Although the weather greatly affects the use of natural gas as a source of heat in many residences, home heating accounts for only 13 percent of all natural gas consumption, said Jim Kendell, director of the oil and gas division in the office of integrated analysis and forecasting for the EIA.

The fuel is much more commonly used by power companies to generate electricity since Congress relaxed gas regulations more than a decade ago.

Power companies have closed many coal-fired plants or retrofitted them into gas-fired plants to achieve lower pollution levels.

"In the past three years, they've built a whole lot of gas-powered electric plants," Mr. Kendell said.

The power plants consume vast amounts of gas during the warm summer months to meet the electric demand of consumers running air conditioners full bore. Such demand makes it difficult to build large gas stockpiles for residential heating in the winter.

Simone Brands, a spokeswoman for SCANA Energy said the milder summer weather allowed for increased natural gas storage for the upcoming winter. However, the EIA reported earlier this month that natural gas storage was down almost 10 percent from last year.

Further complicating the situation is that gas fields in the Midwest are becoming depleted.

"Many of our natural gas wells have been producing for decades and are no longer productive," Ms. Magnuson said.

To rectify this problem, companies are seeking new drilling locations and importing gas from Canada.

The Gulf of Mexico and Rocky Mountains have large gas deposits, but the costs of drilling off-shore and in the mountains is much higher than drilling in Midwestern plains states.

Delivery costs, which make up roughly 19 percent of the total fuel cost, play a factor because most storage depots are in Texas and Louisiana. Large amounts of the fuel are stored in depleted salt caverns, which are not found in the Southeast.

"It would be great if we could have big storage around Washington (D.C.) or Philadelphia," Mr. Kendell said. "But the geography is not good."

Georgia deregulated the natural gas industry in 1998 with the hopes that competition would reduce prices, but increased use of the fuel in electricity production and poor weather conditions drastically altered the demand for the fuel.

"I don't think that consumers have seen as much benefit as we thought they would," said Bill Edge, a spokesman for the state Public Service Commission.

The volatility of the market because of economic and weather conditions has left consumers facing continually increasing gas prices.

"One of the good things about deregulation is that many of the marketers have offered these fixed-rate plans," said David Burgess, commissioner with the Georgia Public Service Commission.

Fixed-rate natural gas plans offer customers a constant price on natural gas for a contracted period. Fixed-rate prices are generally higher than variable rates at the start of the contract, but may be less at the end if prices continue to rise.

To prevent low-income homes from suffering in the winter, Georgia appointed SCANA Energy as a regulated provider. For those who meet the low-income requirements, established by the Georgia Department of Human Resources, natural gas prices are reduced to about one-third of the regular cost.

Reach James Gallagher at (706) 823-3227 or james.gallagher@augustachronicle.com.